Cost Accounting 101 Practice Test: Activity-Based Costing and Activity-Based Management — Flashcards

Activity-based costing (ABC) is a methodology for creating a budget based on an activity schedule. Activity-based management (ABM) is a broader concept that treats budget, management, and reporting as parts of a single framework. 

ABC is an accounting method that tracks the consumption of each product and service for each activity. It identifies all the activities involved in service delivery and assigns costs to each activity based on actual resource consumption. 
ABM is a management approach that uses ABC data to make strategic decisions. It expands the ABC model by separating the concept of product costing from the task of directly managing activities. ABM can help achieve cost efficiencies and enhance quality in business processes. 

Here are some differences between ABC and ABM:
ABC: Assigns costs to products or services based on their consumption of resources caused by activities.
ABM: Identifies and uses multiple cost drivers and performance measures. It also considers non-cost aspects like customer satisfaction, quality, and value. 
Here are some examples of ABC: Calculating the budget of an intervention, Negotiating with implementing partners, Providing instructions for the tendering procedure, and Managing and monitoring during implementation. 

Here are some examples of ABM:
Analyzing a current budget and how to budget for a new location
Deciding which activity is profitable to perform domestically and which is required to be outsourced 

Related Test: Cost Accounting 101 Practice Test: Basics of Job Costing